What to Do in a Collection Lawsuit
Aggressive debt buyers make big business out of purchasing and collecting on old credit card, medical, and charged-off consumer debt. California passed its Debt Buyers Fair Practices Act in part because old consumer debt accounts that have been bought and sold by debt buyers multiple times are a source for much consumer confusion and abusive debt practices. The California act requires, among other things, that collectors must provide a chain of title for such accounts and disclose when they are barred from legally enforcing an old debt, and it restricts how bad debt is reported to credit rating agencies.
These recent legal developments are encouraging but are specific to California residents only. Listed below are things consumers can do under current federal law, before and even after a debt buyer escalates their collection efforts into a lawsuit:
Get a Receipt
If a debt buyer/collector files a lawsuit against a consumer, they must show the court that they purchased the debt from the original creditor. They have to essentially provide a receipt for the purchase in the form of an affidavit, bill of sale, or assignment of the consumer’s specific account. A copy of a credit application or past statements is not sufficient.
Ensure Transfer is from Original Creditor
The affidavit of transfer of ownership is from the original creditor, not the debt buyer.
Request Documentation of the Debt
Under the Fair Debt Collection Practices Act, consumers have 30 days from contact by a collector about a debt to dispute the validity of the debt. Once disputed, the collector has to provide evidence that supports the validity of the debt. Consumers should review any documentation with caution.
Ensure Valid Documentation of the Debt
Don’t mistake receipt of excessive documentation as valid documentation. Seek assistance from a qualified legal professional if there is uncertainty.
Check Statute of Limitations in Your State
If an account is old, then the debt buyer may be prevented from filing a lawsuit to collect. Check your state’s Statute of Limitations because even if the account is valid, lawsuits to collect the debt can be “time barred.”
Don’t Activate an Account
Consumers should take extra caution not to reactivate a time-barred account by making a payment on account. Once “reactivated,” the Statute of Limitations is no longer a valid defense. When uncertain, seek legal counsel on the proper way to proceed.
Monitor Communication
Federal law restricts how debt collectors can communicate with a debtor. They cannot discuss a debt matter with a third party (such as an attorney) unless you have authorized them to do so. They cannot use harassing language, provide misleading information, or call at unreasonable hours or places of work.
Respond to Communication
Consumers should never ignore written communication from a debt collector, as there are serious timing considerations that, if ignored, could cause a consumer to lose their rights. Most importantly, always respond to a filed lawsuit because a debt, while otherwise invalid, could be enforceable if a debt buyer secures a default judgment against a consumer who fails to respond.
Know Your Rights
Few debt collectors are successful without being persistent, intimidating, and assertive. Unscrupulous collectors have been known to make their communications appear as if they came from a court—looking like a lawsuit or legal summons, which is illegal. However, they count on consumers to be intimidated into paying on accounts they would not otherwise be legally responsible to pay.
Challenge the Validity of the Debt
Consumers who proactively challenge the validity of a debt are most apt to discourage or even defeat a collection lawsuit, because a debt buyer would rather focus their attention on easier accounts.
About David Soble: David is a seasoned real estate and finance attorney with more than 35 years of experience, combining his background as a “big bank insider” with a commitment to demystifying complex legal issues for his clients. As the founding attorney of Soble Law (also known as Soble PLC / Proven Resource), he leads a specialized team in Michigan and Ohio that handles real estate transactions, contract disputes, probate, and financial litigation. Known for a practical, no-nonsense approach and peer-rated excellence (Martindale-Hubbell AV Preeminent), Soble and his team strive to protect clients’ property and financial interests with clarity, integrity, and experience.
Disclaimer: You should not rely or act upon the contents of this article without seeking advice from your own qualified attorney.
